Risk assessment

A recovery mitigated by the European slowdown

Following Greece's exit from its third adjustment programme in August 2018, its economic upturn is continuing despite the slowdown in both Europe and the world. Growth gained momentum in 2018, driven by robust household consumption and positive net exports, and will likely remain solid in 2019. The labour market is likely to stay on its positive trend, with an expected decline in the unemployment rate that should support household consumption. In addition, real wage increases are projected to continue to drive purchasing power. Investment, which grew at a sluggish pace in 2018, is set to strengthen, but will probably rebound by a less-than-anticipated amount. Renewed confidence, an improving business environment, and tax incentives – including lower corporate and dividend taxes – should fuel fixed capital growth.

Nevertheless, the banking system's weaknesses inherited from the crisis, as well as more restrictive financing conditions than in the rest of the eurozone, will likely continue to limit SME investments. Although access to bank credit has improved and deposits have stabilised, Greek banks’ level of non-performing loans remains high, despite their commitment to a gradual clean-up of their balance sheets. The non-performing loans ratio was 45.1% in March 2019 – well below the 35% target for 2019, and so credit risk remains high. Finally, net exports will have a negative impact on growth despite services exports which are still on a positive trend.

Clean public accounts in line with commitments

Fiscal consolidation efforts undertaken since 2015 have enabled the country to gradually balance the public accounts and rebuild the credibility of its fiscal policies. For the third year running, the government balance was in surplus, and the primary surplus remained in line with the objectives set by the adjustment programme. Greece is no longer subject to the programme, but committed itself at the Eurogroup summit in June 2018 to continue and complete reforms in exchange for further debt relief. In order to ensure its sustainability, European lenders and the government have already agreed on a package of measures, including a deferral of interest and depreciation, as well as a ten-year extension on European Financial Stability Fund loans. Greece has adopted a 2019 budget that plans to keep the primary surplus in line with commitments while introducing fiscal easing. In May 2019, the Tsipras government decided to support households, notably with a VAT cut and a bonus for pensioners' pensions, in addition to the 11% increase in the minimum wage in January. Although revenues are expected to benefit from the favourable economic situation and better tax collection, the aforementioned tax measures cast doubt on achieving the 3.5% primary surplus target set by European lenders. In addition, the slight increase in debt service will weigh on the budget surplus. Despite the 2018 primary surplus, the weight of public debt increased last year due to the disbursement of EUR 15 billion under the Emergency Safeguard Mechanism in August 2018. Its weight should remain stable across the whole of 2019. This debt is now mainly concessional (80% held by European lenders).

Greece shifts right but with the same fiscal constraints

In July 2019, the centre-right New Democracy party won the general election against the left-wing Syriza party of Alexis Tsipras, the incumbent Prime Minister. It obtained an outright majority in the Greek parliament, the Voulí. The next day, its leader Kyriakos Mitsotakis was sworn in as Prime Minister. He promised to boost the economy, mainly through a large tax cut for businesses and the middle class. He wants to increase investment and growth in order to accelerate the reduction of unemployment, which was still around 18% at the beginning of 2019. However, he will have to cope with the intransigence of European lenders. The latter frequently point out that debt relief is conditional on compliance with the Greece's commitments, in particular the primary surplus target of 3.5% of GDP.

Last update : August 2019

Payment

Bills of exchange, as well as promissory letters, are used by Greek companies in domestic and international transactions. In the event of payment default, a protest certifying the dishonoured bill must be drawn up by a public notary within two working days of the due date.

Similarly, cheques are still widely used in international transactions. In the domestic business environment, however, cheques are customarily used less as an instrument of payment, and more as a credit instrument, making it possible to create successive payment due dates. It is therefore a common and widespread practice for several creditors to endorse post-dated cheques. Furthermore, issuers of dishonoured cheques may be liable to prosecution provided a complaint is lodged.

Promissory letters (hyposhetiki epistoli) are another means of payment used by Greek companies in international transactions. They are a written acknowledgement of an obligation to pay, issued to the creditor by the customer’s bank, committing the originator to pay the creditor at a contractually fixed date. Although promissory letters are a sufficiently effective instrument in that they constitute a clear acknowledgement of debt on the part of the buyer, they are not deemed a bill of exchange and so fall outside the scope of the “exchange law”.

SWIFT bank transfers, well established in Greek banking circles, are used to settle a growing proportion of transactions and offer a quick and secure method of payment. SEPA bank transfers are also becoming more popular, as they are fast, secured and supported by a more developed banking network.

In 2015, Greece imposed restrictions on flows of capital outside the country. All payments directed abroad follow a specific procedure, and are monitored by the banks and the Ministry of Finance, with restrictions placed on the amount and nature of the transfer.

Debt collection

Amicable phase

Before initiating proceedings in front of the competent court, an alternative method to recover a debt is to try to agree with the debtor on a settlement plan. Reaching the most beneficial arrangement can usually be achieved by means of a negotiating process.

The recovery process commences with the debtor being sent a final demand for payment via a registered letter, reminding him of his payment obligations, including any interest penalties as may have been contractually agreed – or, failing this, those accruing at the legal rate of interest. Interest is due from the day following the date of payment stipulated in the invoice or commercial agreement at a rate, unless the parties agree otherwise, equal to the European Central Bank’s refinancing rate, plus seven percentage points.

Legal proceedings

Fast track proceedings

Creditors may seek an injunction to pay (diataghi pliromis) from the court via a lawyer under a fast-track procedure that generally takes one month from the date of lodging the petition. To engage such a procedure, the creditor must possess a written document substantiating the claim underlying his lawsuit, such as an accepted and protested bill, an unpaid promissory letter or promissory note, an acknowledgement of debt established by private deed, or an original invoice summarising the goods sold and bearing the buyer’s signature and stamp certifying receipt of delivery or the original delivery slip signed by the buyer.

The ruling issued by the judge allows immediate execution subject to the right granted to the defendant to lodge an objection within 15 days. To obtain suspension of execution, the debtor must petition the court accordingly.

Based on current competence thresholds, a “justice of the peace” (Eirinodikeio) hears claims up to €20,000. Above that amount, a court of first instance presided by a single judge (Monomeles Protodikeio) hears claims from €20,000to €250,000. Claims over €250,000 are reviewed by a panel of three judges (Polymeles Protodikeio).

Ordinary proceedings

Where creditors do not have written and clear acknowledgement of non-payment from the debtor, or where the claim is disputed, the only remaining alternative is to obtain a summons under ordinary proceedings. The creditor files a claim with the court, who serves the debtor within 60 days. The hearing would be set at least eighteen months later. Greek law allows the court to render a default judgment if the respondent fails to file a defence. Since 2016, the lawsuit procedure has been changed, and is now based exclusively on documentation provided to support the claim.

Enforcement of a legal decision

Enforcement of a domestic decision may commence once it is final. If the debtor fails to satisfy the judgment, the latter is enforceable directly through the attachment of the debtor’s assets.

For foreign awards rendered in an EU member state, Greece has adopted advantageous enforcement conditions such as the EU Payment Orders or the European Enforcement Order. For decisions rendered by non EU countries, they will be automatically enforced according to reciprocal enforcement treaties. In the absence of an agreement, exequatur proceedings will take place.

Insolvency proceedings

Restructuring proceedings

This procedure aims to help the debtor restore its credibility and viability, and continue its operations beyond bankruptcy. The debtor negotiates an agreement with its creditors. During this procedure, claims and enforcement actions against the debtor may be stayed but the court will appoint an administrator to control the debtor’s assets and performances. The reorganisation process starts with the debtor’s submission of a plan to the court made by specialists, which conducts a judicial review of the proposed plan whilst a court-appointed mediator assesses the creditors’ expectations. The plan can only be validated upon approval by creditors representing 60% of the total debt. (60% is not always applicable, depending on the case and approval by the bank).

Liquidation

The procedure commences with an insolvency petition either by the debtor or the creditor. The court appoints an administrator as soon as the debts are verified. In addition a Pool of Creditors (three members representing each class of creditors) will be given the responsibility of overseeing the proceedings, which terminate once the proceeds of the sale of the business’ assets are distributed.